United States: What's New For Tax Year 2016 (When Filing In 2017)

The following are select tax topics affecting individuals and
businesses for tax year 2016. Several issues of significance to
individuals and businesses for 2015 remain relevant for 2016 and
are noted below. The impact of select new topics below, such as
individual and business impacts of the Affordable Care Act, are
discussed in great depth.

Individuals

Top Tax Rates

Single filers with taxable incomes exceeding $415,051 ($466,951
for married taxpayers filing jointly) are subject to the top tax
rate of 39.6 percent in 2016.

Net Investment Income Tax

Since the net investment tax has been in existence only since
the 2013 tax year, continued discussion is warranted. The net
investment income tax, or NIIT, applies to individual, trust and
estate income tax returns and is 3.8 percent of the lesser of two
amounts: net investment income, or the excess of the taxpayer's
modified adjusted gross income (MAGI) above $200,000 (single filer)
or $250,000 (joint filer). Net investment income includes three
broad categories: interest, dividends, annuity, royalty and rental
income; net income from a business in which the taxpayer does not
materially participate; and business income from trading in
financial instruments or commodities, as well as capital gains and
other net gains from the sale of investment or passive property.
Items excluded from net investment income include, but are not
limited to, distributions from certain qualified retirement plans
and individual retirement accounts, and municipal bond interest.
Repeal of the Affordable Care Act would eliminate the net
investment income tax.

Additional Medicare Taxes

An additional 0.9-percent Medicare tax continues to apply to
FICA wages and self-employment income exceeding $200,000 for single
taxpayers, $250,000 for joint filers and $125,000 for married
taxpayers filing separately. This is in addition to the existing
Medicare tax of 1.45 percent on all earned income and Social
Security tax of 6.2 percent on earned income up to $118,500 for
2016. Repeal of the Affordable Care Act would eliminate the
additional Medicare tax

Capital Gains Tax Rate

The maximum tax rate for long-term gains is 20 percent for
taxpayers in the highest tax bracket (39.6 percent), remains at 0
percent for taxpayers at or below the 15-percent bracket and
remains at 15 percent for all others.

Alternative Minimum Tax (AMT)

The exemption is increased to $53,900 (from $53,600) for single
taxpayers, $83,800 (from $83,400) for joint filers and $41,900
(from $41,700) if married and filing separately. These increases
are permanent and will continue to be indexed annually for
inflation. Also, certain non-refundable personal credits are
permitted to offset the entire regular and AMT tax liabilities.

Personal Exemptions

The personal exemption is $4,050 for 2016, an increase of $50.
Phase-outs of the exemptions begin with adjusted gross income (AGI)
of $259,400 for single taxpayers ($311,300 for married taxpayers
filing jointly).

Limitations for Itemized Deductions

The phase-out of itemized deductions (often called the
"Pease" Limitation) returned in 2013 and continues to
impact taxpayers for 2016. Married taxpayers filing jointly with
AGI of $311,300 or higher ($259,400 for single taxpayers) will once
again see their itemized deductions reduced by 3 percent of the
amount by which their AGI exceeds these thresholds. This reduction
is capped at 80 percent of itemized deductions.

Medical Expense Deduction

The medical expense deduction is once again limited to a
10-percent-of-AGI threshold for taxpayers under age 65. Those age
65 and older (or whose spouse is 65 or older) still have through
2016 to use the 7.5-percent threshold previously applicable to all
taxpayers. Starting in 2017, the deduction will be limited to
10-percent-of-AGI for all taxpayers.

Standard Mileage Rates

The standard mileage rate is 54.0 cents per mile for business
use of car, 19.0 cents per mile for medical and moving purposes and
remains at 14 cents per mile for charitable purposes.

Retirement Savings Plans Continue

IRA deductions may be available for those covered by other plans
subject to certain dollar limits and phased out for single and
joint taxpayers with AGI between $61,000 to $71,000 and $98,000 and
$118,000, respectively. For joint filers where only one spouse is
covered by another plan, the phase-out range is $184,000 to
$194,000. The overall contribution limits remain the same, at
$5,500 for a traditional or Roth IRA, with an additional $1,000
available for those over age 50.

Roth IRA Income Limits

Roth contributions may be allowed for those with MAGI of less
than $132,000 for single taxpayers and $194,000 for joint
filers.

American Opportunity Tax Education Credit
Continues

Up to $2,500 of credit per student is available for qualified
higher-education expenses, such as tuition and cost of books.
Phase-out begins at MAGI of $80,000 for single filers and $160,000
for joint filers.

Tax Benefits for Adoption

The maximum adoption credit increased to $13,460 for
out-of-pocket expenses for the legal adoption of a child. The
credit is nonrefundable and phases out for taxpayers with MAGI
exceeding $201,920.

Energy Incentives

A Residential Energy Efficient Property Credit is still
available to taxpayers who install certain energy-efficient
property, such as photovoltaic panels, solar water heating
property, fuel cell property, small wind energy property and
geothermal heat pumps. The credit is available for expenditures
incurred for such property up to a specific percentage, although a
cap applies to fuel cell property. The property purchased cannot be
used to heat swimming pools or hot tubs. This credit expired at the
end of 2016 and is unlikely to be renewed for 2017.

Individual Tax Extenders

The Protecting Americans from Tax Hikes Act of 2015 (PATH),
signed into law by President Obama on December 18, 2015, renewed or
made permanent certain individual tax extenders. Some of the
relevant tax extenders include:

State and Local Sales Tax Deduction
(made permanent) – the option to take an itemized deduction
for state and local general sales taxes instead of the itemized
deduction permitted for state and local income taxes.

Higher Education Deduction (expiring
in 2016) – an above-the-line deduction is available for
qualified tuition and fees for post-secondary education. The
maximum deduction is $4,000 for taxpayers with AGI not exceeding
$65,000 ($130,000 for married taxpayers filing jointly), $2,000 for
taxpayers with AGI between $65,000 and $80,000 ($130,000 to
$160,000 for married taxpayers filing jointly) and $0 for other
taxpayers.

Teachers' Classroom Expense
Deduction (made permanent and indexed for inflation) – an
above-the-line deduction is available for primary and secondary
education professionals (grades K-12, including school
administrators and assistants) reflecting qualified out-of-pocket
expenses of up to $250. New rules also provide that expenses for
professional development shall be considered eligible
expenses.

Mortgage Debt Exclusion (expiring in
2016)– up to $2 million ($1 million for married taxpayers
filing separately) may be excluded from income for cancellation of
mortgage debt on a principal residence. Expiring in 2016 unless
discharge was pursuant to a binding written agreement entered into
prior to January 1, 2017.

Mortgage Insurance Premium Deduction
(expiring in 2016) – a deduction is available for premiums
paid or accrued in connection with acquisition debt of a primary or
second home. The PMI deduction is reduced by 10 percent for each
$1,000 by which the taxpayer's AGI exceeds $100,000. The
deduction disappears completely for most homeowners whose AGI is
$109,000 ($54,500 for married taxpayers filing separately).

Charitable Distributions from IRAs
(made permanent) – individuals age 70-˝ and older may
make annual tax-free distributions, up to $100,000 per taxpayer,
from IRAs to qualified charitable organizations. All or part of the
taxpayer's required minimum distribution (RMD) may be included
in the QCD.

Mass Transit and Parking Benefits
(made permanent and adjusted for inflation)– up to $255 per
month may be excluded from income for employer-provided
mass-transit and parking benefits each.

Contribution of Real Property for
Conservation Purposes (made permanent) – a maximum deduction
of 50 percent of AGI in any given year is available for the
donation of a conservation easement.

Social Security Cap Increased for 2017

While the 2016 cap on wages subject to Social Security Tax is
still $118,500 the 2017 cap has been increased to $127,200. This
increases the maximum social security tax withheld on a single
employee to $7,886.40 (from $7,347) and for a self-employed
individual to $15,772.80 (from $14,694).

Estate and Gift Tax Changes

The top estate and gift tax rate increased to 40 percent, the
estate tax exemption increased to $5.45 million and the annual
per-donee gift tax exclusion remains at $14,000 for 2016.
Additionally, estate tax portability was made permanent in
2014.

FBAR Due Date

The due date for filing FinCEN Form 114, Report of Foreign
Bank and Financial Accounts (FBAR), is April 15 of the year
following the calendar year being reported. Taxpayers can also
request a six-month extension of time to file the FBAR. In prior
years, Form 114 was due June 30 with no extension.

Businesses

Property Purchased by Businesses

Effective for taxable years beginning on or after January 1,
2014, the IRS finalized regulations that provide guidance for when
taxpayers should capitalize or deduct as a current expense repairs
on tangible property, plus the deductibility of materials and
supplies. A deduction for materials and supplies is allowed under a
de minimis rule that includes property that has an
acquisition or production cost of $200 or less. Also, another
de minimis safe harbor states that for repairs to be
deductible, among other requirements, the unit of property must
cost less than $5,000 per invoice or item substantiated by the
invoice for taxpayers with applicable financial statements and
$2,500 per invoice for taxpayers without applicable financial
statements.

Business Start-up and Organizational Costs

Deductions of up to $5,000 of business start-up and $5,000 of
organizational costs paid are still available in the year in which
an active trade or business begins. The $5,000 deduction is reduced
by the amount of total start-up or organizational costs that exceed
$50,000. Any remaining costs must be amortized over 180 months.

Small Employer Pension Plan Startup Cost Credit: For
2016

Certain small business employers that did not have a pension
plan for the preceding three years may claim a nonrefundable income
tax credit for expenses of establishing and administering a new
retirement plan for employees. The credit applies to 50 percent of
qualified administrative and retirement-education expenses for each
of the first three plan years. However, the maximum credit is $500
per year.

Employer-Provided Child Care Credit: For 2016

Employers may claim a credit of up to $150,000 for supporting
employee child care or child care resource and referral services.
The credit is allowed for a percentage of "qualified child
care expenditures," including for property to be used as part
of a qualified child care facility, for operating costs of a
qualified child care facility and for resource and referral
expenditures.

Business Tax Extenders

The Protecting Americans from Tax Hikes Act of 2015 (PATH),
signed into law by President Obama on December 18, 2015, renewed or
made permanent certain business tax extenders through. Some of the
relevant tax extenders include:

Bonus Depreciation (extended with
expiring provisions) – extended for property placed in
service during 2015 through 2019; the 50-percent rate is phased
down to 40 percent for property placed in service during 2018 and
30 percent for property placed in service during 2019. Phase down
is also required for the $8,000 increase, for bonus-depreciation
eligible cars, of the first-year depreciation and expensing dollar
cap for cars. The provision makes qualified building improvements
(no longer just qualified building leasehold improvements) bonus
depreciation eligible.

Section 179 Deduction (made permanent
and indexed for inflation) – businesses can expense up to
$500,000 of qualified depreciable property under Section 179, with
phase-out beginning when property placed in service exceeds $2.01
million. Off-the-shelf software continues to qualify for the
election, as well.

Qualified Leasehold/Retail
Improvements, Restaurant Property (made permanent) – an
election to treat up to $500,000 of qualified property as Section
179 property is available starting in 2016.

Research Tax Credit (made permanent)
– a credit for business-related qualified research
expenditures and for increases in payments to universities and
other qualified organizations for basic research is available. The
research credit generally allows taxpayers a 20-percent credit for
qualified research expenses or a 14-percent alternative simplified
credit. Starting in tax years after 2016, a new provision provides
that, in the case of an eligible small business, the research
credit is a specified credit. Thus, these research credits of an
eligible small business may offset both regular tax and AMT
liabilities.

Work Opportunity Tax Credit (extended
to 2019) – a credit is available for employers that hire
military veterans and other qualified individuals. The credit
amount is generally equal to 40 percent of up to $6,000 (higher for
some veterans) in qualified first-year wages. Starting in 2016 a
new group includes Qualified long-term unemployment recipients
which for purposes of this credit are individuals who have been
certified by the designated local agency as being in a period of
unemployment of 27 weeks or more, which includes a period in which
the individual was receiving unemployment compensation under state
or federal law.

Exclusion for Gain on Qualified Small
Business Stock (made permanent) – 100-percent exclusion of
gain on the sale or exchange of qualified stock held for more than
five years by non-corporate taxpayers.

Reduced Recognition Period for S
Corporation Built-in Gains Tax (made permanent) – the
recognition period is five years versus 10 years for built-in gain
following conversion from a C to an S corporation.

Qualified Leasehold Improvement Property

New rules effective for tax years after 2015 allow additional
first-year depreciation for qualified improvement property without
regard to whether the improvements are property subject to a lease.
The new law also removes the requirement that the improvement must
be placed in service more than three years after the date the
building was first placed in service.

Filing Deadlines for Corporate returns

For tax years beginning after December 31, 2015, the due date
for filing Form 1120 (C corporations) is April 15 (15th day of 4th
month after the close of the tax year for fiscal year
corporations). S corporations will continue to have a due date on
the 15th day of the 3rd month (March 15th for calendar year S
corporations).

Partnership Return Filing Deadline

For tax years beginning after December 31, 2015, the due date
for filing Form 1065 and providing partners with a Schedule K-1 is
March 15 (15th day of 3rd month after the close of the tax year for
fiscal year partnerships).

If you would like more information about this topic or
your own unique situation, please contact any of the practitioners
in the Tax Accounting Group. For information about other pertinent
tax topics, please visit our publications page located
here.

Disclaimer:This Alert has been
prepared and published for informational purposes only and is not
offered, nor should be construed, as legal advice. For more
information, please see the firm's
full disclaimer.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Responding to President Donald Trump's Executive Order 13789, which called on the Secretary of the Treasury to submit an interim report identifying any significant tax regulations issued since January 1, 2016...

On June 15, 2017, just 72 hours after its publication, the California legislature passed the Taxpayer Transparency and Fairness Act of 2017, in a move that will transfer significant responsibilities...

This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).

Email Address

Company Name

Password

Confirm Password

Position

Mondaq Topics -- Select your Interests

Accounting

Anti-trust

Commercial

Compliance

Consumer

Criminal

Employment

Energy

Environment

Family

Finance

Government

Healthcare

Immigration

Insolvency

Insurance

International

IP

Law Performance

Law Practice

Litigation

Media & IT

Privacy

Real Estate

Strategy

Tax

Technology

Transport

Wealth Mgt

Regions

Africa

Asia

Asia Pacific

Australasia

Canada

Caribbean

Europe

European Union

Latin America

Middle East

U.K.

United States

Worldwide Updates

Check to state you have read and agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you
are granted a non-exclusive, revocable license to access the Website under its
terms and conditions of use. Your use of the Website constitutes your agreement
to the following terms and conditions of use. Mondaq Ltd may terminate your use
of the Website if you are in breach of these terms and conditions or if Mondaq
Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to
read the full text of the content and articles available (the Content). You may
not modify, publish, transmit, transfer or sell, reproduce, create derivative
works from, distribute, perform, link, display, or in any way exploit any of the
Content, in whole or in part, except as expressly permitted in these terms &
conditions or with the prior written consent of Mondaq Ltd. You may not use
electronic or other means to extract details or information about Mondaq.com’s
content, users or contributors in order to offer them any services or products
which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the
suitability of the information contained in the documents and related graphics
published on this server for any purpose. All such documents and related
graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or
its respective suppliers hereby disclaim all warranties and conditions with
regard to this information, including all implied warranties and conditions of
merchantability, fitness for a particular purpose, title and non-infringement.
In no event shall Mondaq Ltd and/or its respective suppliers be liable for any
special, indirect or consequential damages or any damages whatsoever resulting
from loss of use, data or profits, whether in an action of contract, negligence
or other tortious action, arising out of or in connection with the use or
performance of information available from this server.

The documents and related graphics published on this server could include
technical inaccuracies or typographical errors. Changes are periodically added
to the information herein. Mondaq Ltd and/or its respective suppliers may make
improvements and/or changes in the product(s) and/or the program(s) described
herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally
identifies you, including what sort of information you are interested in, for
three primary purposes:

To allow you to personalize the Mondaq websites you are visiting.

To enable features such as password reminder, newsletter alerts, email a
colleague, and linking from Mondaq (and its affiliate sites) to your website.

Mondaq (and its affiliate sites) do not sell or provide your details to third
parties other than information providers. The reason we provide our information
providers with this information is so that they can measure the response their
articles are receiving and provide you with information about their products and
services.

If you do not want us to provide your name and email address you may opt out
by clicking here .

If you do not wish to receive any future announcements of products and
services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to
view the free information on the site. We also collect information from our
users at several different points on the websites: this is so that we can
customise the sites according to individual usage, provide 'session-aware'
functionality, and ensure that content is acquired and developed appropriately.
This gives us an overall picture of our user profiles, which in turn shows to
our Editorial Contributors the type of person they are reaching by posting
articles on Mondaq (and its affiliate sites) – meaning more free content for
registered users.

We are only able to provide the material on the Mondaq (and its affiliate
sites) site free to site visitors because we can pass on information about the
pages that users are viewing and the personal information users provide to us
(e.g. email addresses) to reputable contributing firms such as law firms who
author those pages. We do not sell or rent information to anyone else other than
the authors of those pages, who may change from time to time. Should you wish us
not to disclose your details to any of these parties, please tick the box above
or tick the box marked "Opt out of Registration Information Disclosure" on the
Your Profile page. We and our author organisations may only contact you via
email or other means if you allow us to do so. Users can opt out of contact when
they register on the site, or send an email to unsubscribe@mondaq.com with “no
disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate
registration form. This is a personalised service where users choose regions and
topics of interest and we send it only to those users who have requested it.
Users can stop receiving these Alerts by going to the Mondaq News Alerts page
and deselecting all interest areas. In the same way users can amend their
personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an
identifying user number. The cookies do not contain any personal information
about users. We use the cookie so users do not have to log in every time they
use the service and the cookie will automatically expire if you do not visit the
Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to
personalise a user's experience of the site (for example to show information
specific to a user's region). As the Mondaq sites are fully personalised and
cookies are essential to its core technology the site will function
unpredictably with browsers that do not support cookies - or where cookies are
disabled (in these circumstances we advise you to attempt to locate the
information you require elsewhere on the web). However if you are concerned
about the presence of a Mondaq cookie on your machine you can also choose to
expire the cookie immediately (remove it) by selecting the 'Log Off' menu option
as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example,
advertisers). However, we have no access to or control over these cookies and we
are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement,
and gather broad demographic information for aggregate use. IP addresses are not
linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or
its affiliate sites) are not responsible for the privacy practices of such other
sites. We encourage our users to be aware when they leave our site and to read
the privacy statements of these third party sites. This privacy statement
applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or
contests. Participation in these surveys or contests is completely voluntary and
the user therefore has a choice whether or not to disclose any information
requested. Information requested may include contact information (such as name
and delivery address), and demographic information (such as postcode, age
level). Contact information will be used to notify the winners and award prizes.
Survey information will be used for purposes of monitoring or improving the
functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our
site, we ask them for the friend’s name and email address. Mondaq stores this
information and may contact the friend to invite them to register with Mondaq,
but they will not be contacted more than once. The friend may contact Mondaq to
request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’
information. When users submit sensitive information via the website, your
information is protected using firewalls and other security technology. If you
have any questions about the security at our website, you can send an email to
webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode),
or if a user no longer desires our service, we will endeavour to provide a way
to correct, update or remove that user’s personal data provided to us. This can
usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will
post those changes on our site so our users are always aware of what information
we collect, how we use it, and under what circumstances, if any, we disclose it.
If at any point we decide to use personally identifiable information in a manner
different from that stated at the time it was collected, we will notify users by
way of an email. Users will have a choice as to whether or not we use their
information in this different manner. We will use information in accordance with
the privacy policy under which the information was collected.

How to contact Mondaq

If for some reason you believe Mondaq Ltd. has not adhered to these
principles, please notify us by e-mail at problems@mondaq.com and we will use
commercially reasonable efforts to determine and correct the problem promptly.